Hoteliers operating without EMV chip credit card technology are losing money to chargebacks from cardholders, and there’s no clear timeline of when the new technology will become fully available.
REPORT FROM THE U.S.—One year after the liability shift for EMV chip credit cards, many hotel companies have yet to fully implement the new technology designed to protect against fraud.
That delay in implementation isn’t for lack of trying, however. There are a number of factors—external to the hotel industry—that are holding back universal adoption.
In the meantime, those hotel companies remain liable for any claims of fraudulent charges—even if a cardholder did, in fact, stay at the hotel in question.
What's behind the delay
Hotel managers must take several steps before they can install and use the new devices and software for EMV chip credit cards, said Joe Gallo, manager of workgroup operations at Hotel Technology Next Generation. First, the company needs to be certified, he said, and it needs the hardware and software. Then, there’s the matter of making that hardware and software compatible with the hotel’s point-of-sales systems.
“The holdup is the process: the EMV certification process, the lack of availability (of devices) for POS systems,” he said. “Those are the two primary bottlenecks.”
The certification process for EMV chip cards—used in chip-and-PIN cards and chip-and-signature cards—is lengthy and in-depth, Gallo said. That includes an enormous amount of administrative work, including audits.
The other problem is there aren’t enough EMV chip card readers available.
“They literally cannot manufacture enough in an appropriate timeframe,” he said. “It will be X number of years before they can accommodate the amount of POS systems that are required.”
The liability shift in October 2015 wasn’t a surprise, Gallo said; it had been in the works for years.
But hotel owners “didn’t think it would be enforced,” he said. “The mandate is here, and the devices are not. They took into consideration things like the penalty fees one would have to pay for being EMV-ready would be less significant than the cost to implement EMV.”
During all of this, brand companies are trying to get their proprietary systems to work with the new technology, Gallo said. They’re looking at where and why they’re investing, he said, and figuring out where the technology will lead them in the next 10 years.
“They’re trying to figure out … when they roll out EMV, can they have strong encryption or tokenization?” he said. “Will they be tied to one card brand because they hold the key to the token or are they free to move around?”
Hurt by chargebacks
Of the 35 hotels in Peachtree Hotel Group’s portfolio, only one is EMV-ready, said Scott Warner, Peachtree’s VP of operations. The actual installation of the technology at the Sheraton Jacksonville Hotel in Jacksonville, Florida, was simple, he said, but most of the major brands haven’t been able to come up a way to make their systems compatible. Even retailers seem to be hit or miss with their EMV card readers, he said.
At the moment, Peachtree is waiting for its remaining brands to issue their guidelines, Warner said, because his company can’t hook up any new devices to the property-management software without brand approval first.
“Everybody’s just waiting,” he said. “We’re waiting on the brands to come up with the correct technology to implement.”
Because the majority of his company’s hotels aren’t EMV-ready, they have lost money to chargebacks from credit processors in Canada, Warner said.
“The banks took it upon themselves because the chip readers were not in place,” he said.
It’s easier now for cardholders to claim a fraudulent charge if they make a transaction at a commercial entity without an EMV chip card reader. Because of the liability shift, the burden falls on the commercial entities without the new technology. Guests can claim a stay at a hotel is fraudulent—even if the charge is legitimate—just because they used an EMV chip credit card at a hotel that can only swipe the magnetic strip.
One approach that could help hoteliers dispute chargebacks would be to have front-desk associates read the number on the physical card to make sure the last four digits match those on the printed receipt, Gallo said. Of course, the staff also must make sure there is some form of record documenting this action, he said, which could mean capturing the transaction on the front-desk camera.
There’s some cost associated with disputing a chargeback, he said, but with several hundreds of dollars on the line, most hotel companies would fight it.
Ahead of the game
Red Roof Inn has completed its EMV rollout at its corporate locations and about two or three dozen franchise locations, President Andrew Alexander said. The rest are in queue with banks for the chip and signature solution, he said.
The delay in full implementation, he said, most often comes from credit card processors having to verify each machine in a long line of machines. The credit card companies changed some requirements before the deadline, he said, and the banks and processors then had to rewrite their code.
“I think we’re going to be a very early adapter,” Alexander said. “For an economy hotel to lead the tech change, it says a lot for us to be an innovative brand.”
Chargebacks have been an issue, he said, as people learned quickly that they could dispute a charge and that credit card companies aren’t supporting merchants like they used to.
“Getting this chip and signature in place would be really important for our brand,” he said. “All franchisees would benefit.”
It was a two-year process to get the new card readers, Red Roof Inn’s Chief Development Officer Phil Hugh said, and the company delivered all of the devices to its locations last year. Red Roof Inn assumed all of the costs on the front side, he said.
The company agreed with franchisees to provide the readers mostly free of cost, Alexander said. That investment allowed the company to be at the front line of implementation.